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Competition in Retail Banking
Dr. Hedva Ber, Supervisor of BanksApril 2, 2019
Change is in the air
Three years ago, the Bank of Israel defined the promotion of competition in banking, for the benefit of households and small businesses, asa target
And we rolled up our sleeves and got to work…
Promoting competition is possible when the banks are stable
Stability is the foundation (and the strength)
The end result: the public thinks that banking competition is improving
“Which of the following industries requires the most urgent government intervention in order to enhance competition, if at all?”
Yifat survey 2015/2018, immediately after elections were announced.
Banking competition: change is in the air.
14 15
26
21
4 2
28
2320
6 62
0
5
10
15
20
25
30
Food Energy Real estate Banks and CreditCard companies
Transportationand Infrasturture
Communication
2015 Survey results 2018 Survey results
%-
70%
The end result: the banks feel that competitive pressure has increased
From a new survey of risks conducted by the Banking Supervision Department among Senior management of banks and credit-card companies, March 2019.
“Of the following factors, what do you think are the most significant ones in business model risk?”
Banking competition: change is in the air.
79 78
69
49
38
0
10
20
30
40
50
60
70
80
90
Increasedcompetition fromnon-bank financial
institution
Competitiongenarated byTechnologicaldevelopment
Competition byTechnological
institutions
Structural changesin the banking
sector
Credit datebaseand open banking
(API)
%
01
02
03
04
05
We issued regulation encouraging technological innovationWe published directives in the media, on e-banking, cloud computing, and more…We established a credit data system The project goes on line in April 2019We supported the separation of two credit card companies from banksWe provided “infant industry protection” in order to create two new strong playersWe lowered entry regulatory hurdles for new banksWe published a lenient policy in 2015We accompanied the establishment of the centralized computing servicesLed by the Minister of Finance
What have we done to promote competition?
We required the improvement of the efficiency in the banking system We issued regulation and directives in 2016–17 and pushed…We lowered entry barriers for new merchant acquirersCarried it out in 2015, 2018We encouraged competition in the payments systemWe collaborated on the Payment Services Law (PSD2), 2019We are leading the “switching banks” projectTimetable—2021We are leading the “open banking” (API) projectTimetable—2020
06
07
08
09
10
What have we done to promote competition?
And the Public is beginning to benefit from the competition…
Banking is changing:
Payment applications were set up
Banking competition: change is in the air.
Banking is changing:
Merchants’ acquiring fees declined
Banking competition: change is in the air.
-10
-8
-12
-10
-8
-6
-4
-2
0
Midsize Banks Small Banks%
Banking is changing:
Increased availability of loans from various sources
For exampleBanking competition: change is in the air.
Banking is changing:
Technological innovations were introduced in investment advising, portfolio management, and more
For exampleBanking competition: change is in the air.
Banking is changing:
Banks are competing on the type and quality of service (digital, branches)
For exampleBanking competition: change is in the air.
Banking is changing:
Fintech companies were set up to compare costs of baking services
For exampleBanking competition: change is in the air.
The market structure is changing
Concentration in banking is declining
Banking competition: change is in the air.
55
45
35
40
45
50
55
60
65%
Credit market share1, large and midsize banks2, March 2012 to December 2018
Large Banks Midsized Banks
1) Balance sheet credit (activity in Israel), credit card companies deducted.2) Large banks- Leumi and Hapoalim. Midsize banks- Mizrahi-Tefahot, Discount, First Int'l.
Banks increased their efficiency by more than 10 percent
40,000
42,000
44,000
46,000
48,000
2014 2015 2016 2017 2018
Number of employee posts in the five banking groups
Banking competition: change is in the air.
Nonbank entities are expanding their share of the consumer credit market at the expense of the banks
Banking competition: change is in the air.
88% 82%
6%9%
3% 6%3% 2%
0.1% 0.7%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
31/12/2015 31/12/2018
Distribution of Households Debt (excluding housing) by Sources a, December 2014 and December 2018
Other Non-Bank (b)
Government
Credit CardCompaniesInstitutionalInvestors
a) Excluding Credit from abroad.b) Including "Mimun Yashir" only, data for June 2018.
Total Debt: 167 billion NIS
Total Debt: 197 billion NIS
The Computer Services Bureau is in the process of being established
Banking competition: change is in the air.
New players “were born”
Banking competition: change is in the air.
And official applications to establish a new bank were submitted to the Banking Supervision Department…
לסיכום
That is:We have done, we are doing, and we will doBank of IsraelMinistry of FinanceMinistry of JusticeCompetition AuthorityCapital Markets AuthorityAnd the Knesset
And banking is changing
Yet there are also challenges
The two new acquirers have not yet begun to operate
The main challenge: Establishing an IT infrastructure for operationsAn additional challenge: Receiving licenses from Visa and MasterCard
4/2017: We granted an acquiring license to Tranzila3/2018: We granted an acquiring license to Cardcom
A representative example of the challenges in changing the competitive environment
Granting a license to new acquirers
However, there is progress and this year at least one acquirer is expected to begin operations
In the background, and alongside all the domestic changes…
Global technological entities (BigTech) are entering the banking and payments sector and competing with banks
Banking competition: change is in the air.
In conclusion:
We are leading the establishment of “infrastructures” for competition
Households and SME’s are beginning to benefit
However,
Competitive change takes time and the benefits will continue to be realized
Gradually
In today’s conference,
we will present some of the major initiatives in the area of banking competitionthat have come to
fruition or are on their way to it
Thank you
Supervisor of Banks Dr. Hedva BerApril 2, 2019
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